NOTICE:  The “Tip Regulations Under the Fair Labor Standards Act (FLSA)” final rule (2020 Tip final rule) was published on December 30, 2020, with an effective date of March 1, 2021. See 85 FR 86756. Consistent with the memorandum of January 20, 2021, from the Assistant to the President and Chief of Staff, titled “Regulatory Freeze Pending Review,” the Department proposed to delay the rule’s effective date to April 30, 2021. See 86 FR 8325. On February 26, 2021, after considering comments received, the Department issued a final rule delaying the effective date until April 30, 2021, in order to allow the Department the opportunity to review issues of law, policy, and fact raised by the 2020 Tip final rule. See 86 FR 11632.

On March 23, 2021, the Department announced two Notices of Proposed Rulemaking (NPRMs) to better protect tipped workers as the effective date of the 2020 Tip final rule approaches.

The first NPRM titled, “Tip Regulations Under the Fair Labor Standards Act (FLSA); Delay of Effective Date,” (See 86 FR 15811) proposes to further extend, until December 31, 2021, the effective date of two portions of the 2020 Tip final rule related to the assessment of civil money penalties (CMPs) under the FLSA, and the portion addressing the FLSA tip credit’s application to tipped employees who perform tipped and non-tipped duties. The Department invites public comments on this NPRM for twenty (20) days following publication of the NPRM in the Federal Register on March 25, 2021. To comment on this NPRM, visit www.regulations.gov.

The second NPRM titled, “Tip Regulations under the Fair Labor Standards Act (FLSA); Partial Withdrawal,” (See 86 FR 15817) proposes to withdraw and re-propose the two portions of the 2020 Tip final rule addressing CMP assessments. This NPRM also seeks comments on whether to revise one other portion of the 2020 Tip final rule (addressing “managers and supervisors” who cannot keep employee’s tips), and asks questions about how it might improve the recordkeeping requirements in the 2020 Tip final rule in a future rulemaking. The Department invites public comments on this NPRM for sixty (60) days following publication of the NPRM in the Federal Register on March 25, 2021. To comment on this NPRM, visit www.regulations.gov.

The Department encourages interested parties to submit comments on each of these NPRMs by 11:59 pm ET on their respective comment period deadline. Comments must be submitted separately for each proposed rulemaking, each of which can be identified by its title. Anyone who submits a comment (including duplicate comments) should understand and expect that the comment, including any personal information provided, will become a matter of public record and will be posted without change to www.regulations.gov. WHD posts comments gathered and submitted by a third-party organization as a group under a single document ID number on www.regulations.gov.

Tips credit Final Rule

On December 22, 2020, the Department of Labor announced a final rule revising its tipped employee regulations to address amendments made to section 3(m) of the Fair Labor Standards Act (FLSA) by the Consolidated Appropriations Act of 2018 (CAA). That amendment prohibits employers from keeping tips received by their employees, regardless of whether the employer takes a tip credit. It also prohibits employers from allowing managers or supervisors to keep any portion of employee’s tips. In addition, the final rule codifies the Department’s guidance regarding the tip credit—how that credit applies to employees who perform tipped and non-tipped duties and which non-tipped duties are related to a tip-producing occupation.

The CAA did not affect longstanding regulations that apply to employers that take a tip credit under the FLSA. For example, employers that claim a tip credit must ensure that a mandatory “traditional” tip pool includes only workers who customarily and regularly receive tips. This means, for example, that employees such as cooks or dishwashers cannot be part of such a tip pool. However, the CAA removed the regulatory restrictions on an employer’s ability to require tip pooling when it does not take a tip credit; those employers may now implement mandatory, “nontraditional” tip pools, which may include employees such as cooks and dishwashers.

In this final rule, the Department:

  • removes the portions of the regulations that prohibited employers that do not take a tip credit from implementing mandatory “nontraditional” tip pools—that is, tip pools that include employees who do not customarily and regularly receive tips;
  • explicitly prohibits employers—regardless of whether they take a tip credit—from keeping employees’ tips for any purpose, which includes prohibiting managers and supervisors from keeping tips received by employees;
  • amends its regulations to state that an employer that collects tips to facilitate a mandatory tip pool must fully redistribute the tips no less often than when it pays wages to avoid “keep[ing]” the tips in violation of section 3(m)(2)(B);
  • incorporates the CAA’s new requirements regarding civil money penalties (CMP) into its regulations and revises additional portions of its CMP regulations to address courts decisions that have raised concerns;
  • incorporates a new recordkeeping requirement for employers that do not take a tip credit but collect employees’ tips to operate a mandatory tip pool;
  • codifies recent guidance explaining that an employer may take a tip credit for time that an employee in a tipped occupation performs related non-tipped duties either contemporaneously with or for a reasonable time immediately before or after performing tipped duties; the final rule also states that, in addition to the examples listed in the regulation, a non-tipped duty is presumed to be related to a tip-producing occupation if it is listed as a task of the tip-producing occupation in O*NET;
  • amends the regulations that address the payment of tipped employees under Executive Order 13658 (Establishing a Minimum Wage for Contractors) to reflect the corresponding changes in the FLSA regulations and to otherwise align those regulations with the Executive Order.

Additional Information